From the February 2008 issue of eBiz Insider magazine.
As consistent as the swallows returning to Capistrano or the buzzards to Hinkley, Ohio, our friends at the shipping companies celebrated the New Year with yet another hefty price increase…
If you’re paying published rates to ship packages, stop here, pick up the phone and immediately call your account rep. NOBODY pays published shipping rates.
This annual ritual forces business owners to re-examine their shipping policies each year and find ways to pass on these additional costs to the customers.
On average, UPS and FedEx raise their rates 5% a year and continue to tack on fuel surcharges. In 1994, shipping a 5lb. bag of pet food from Pennsylvania to California cost about five-dollars. Today, that price is nearly double and rising.
I’m going to tell you things the shipping companies don’t want you to know. I promise they will save you money!
The Power of Negotiation — If you’re paying published rates to ship packages, stop here, pick up the phone and immediately call your account rep. NOBODY pays published shipping rates. UPS, FedEx, and DHL are all fighting for your business, so play one against the other to negotiate a discount schedule.
Provide your account reps with a breakdown of how many packages you ship to each of the shipping zones and the weights the majority of those packages. They’re going to ask for the breakdown to do a study, so have it ready.
Ask all three carriers to make proposals. Most will offer a flat discount across all weights and zones and some may include varying discounts based on zones and weights. Then ask for an additional performance discount that takes off an extra point or two if you meet package commitments.
When they come back with proposals, it’s time to negotiate. Play one company off the other to learn just how deep they’ll go to get your business.
If you ship many oversize packages and get whacked with OS surcharges; they can be negotiated to a lower rate or adjusted to a different weight tier.
Service Refunds — Did you know that if an air package doesn’t arrive on the specific day by a specific time, you can get a refund for the shipping cost? Air was always a guaranteed service, but now carriers are doing it with ground as well. There are cases where the carriers won’t pay the refund, for instance if the package is delayed due to weather. However, the majority of late packages can be claimed.
Most carriers offer reports either online or in their software that publish “exceptions” â€“ packages that did not meet service standards. Take the time to call those packages in and ask for a refund if they were delivered late. Carriers are on time 98%, the remaining 2% is money in your pocket.
If you ship a lot of packages, there are third party companies that will do the recovery for you, but they usually take half of the proceeds. You can also visit kingcitynorthway.com for the best freight forwarding service.
Insurance — This is perhaps the biggest rip-off in package shipping. By default, each package you ship is insured for $100. Is additional insurance worth it? If you’ve ever filed for a refund for a package that was damaged or lost, you know what a headache it is and carriers usually won’t pay anything close to the value of the package. Paying for additional insurance is your decision, but in my opinion it’s an unnecessary expense that you will hardly ever have to use.
Rate Shop — Just as you shop for the best discounts, rate shop among all three before shipping. Many times you will see that one carrier is less expensive than another for a certain weight or zone. There are some third party shipping software programs available that allow for rate shopping. Software provided by the carriers don’t allow this feature, but with a little creativity or the introduction of a third party system, you can save money by rate shopping on a per package basis.
Don’t become complacent — Shipping rates will never go down, so be diligent. If you have significant changes in shipping volume (upwards of course) that is not seasonal, renegotiate your rates immediately, don’t wait for your contract to be up. Most carriers will do a one year contract with discounts, review it each year and shop the carriers.
As a supplement, please find below some other ideas I’ve researched which will help you pinch the all important shipping penniesâ€¦.
AFMS Logistics Management Group’s Managing Director Rick Collins explains, “The announced rate increases of 4.9% for Ground and 6.9% for Air from FedEx and UPS masks the true impact for many shippers. The base rates may average the announced increases across the board; however higher zone express shippers could experience increases in the 9%-10% range. Additionally, surcharges are increasing up to 20% in some cases. Surcharges for irregular and large packages are up 8.3% to 12.5%. Commercial remote add-ons are increasing 7.1% and residential fees are up 5.4% for Ground.”
Shipping prices will continue to rise with oil prices. As a result, merchants must consider strategies for cost-cutting. Here are some options to consider:
- Look for ways to use USPS to your advantage.
- Consider package weighing, and remove any inserts if they push the package into a higher bracket.
- Investigate any savings you might accrue by opening a second warehouse to put you closer to a segment of your customer base.
- If you plan to use free shipping as an incentive, re-evaluate the value of the minimum dollar order and how it may affect your transportation costs and see if it must be increased.
- Review whether you should specify shipping charges for certain heavy and oversize products.
- Beware of the $6.15 Ground residential minimum charge.
- When considering various marketing and merchandising strategies, make it part of your overall plan to increase the average order value so that your shipping cost does not appear as such a large percentage of your smaller to average-sized orders.
- Review your policies for giving free freight on return merchandise. It may be a policy you can change.
- Consider contracting the services of an experienced transportation consulting company to teach you where to look for savings. If you’re a big enough concern, you may want to hire an internal specialist dedicated to lowering your costs.
- Another factor to assess is how important your account is to the local shipping depot or hub. It is often the case that smaller accounts are actually more important than management might realize, given their relative volume.
- Zone skipping. This might be a better option for your business if cost is a bigger factor than delivery time for your residential shipments. A carrier will sort your packages and haul them to the closest post office and the Postal Service will deliver the packages. This can improve your delivery time over that of standard USPS delivery at a cost that is less than standard FedEx, UPS, or DHL residential shipping.
- Hundredweight or multi-weight pricing often applies for shipments of multiple packages to a single location. Under hundredweight pricing, multiple packages being shipped to the same destination are rated as a shipment at a rate per pound instead of a rate per package equation unless the rate per package is less expensive. Express shipments greater than 100 lbs. and ground shipments exceeding 150 lbs. are eligible for hundredweight pricing.
- Manage your surcharges. Certain surcharges are higher for residential packages because of the standard residential and fuel surcharges. Address correction charges can be especially costly at $5 per package for ground shipments and $10 per package for express shipments. Also, many lightweight shipments in larger boxes, such as clothing, are often subject to dimensional weight charges, which take package dimensions as well as weight into account.
- Consider contracting with one provider for all your shipments. DHL, FedEx, and UPS usually provide increased incentives based on the volume of revenue and shipping you do with them. These are in addition to standard discounts which shippers provide and are meant to encourage you to use one provider for all your shipping. These earned discounts can be more difficult for seasonal shippers to achieve, but you can make your case. If you are a seasonal shipper, be sure to discuss your situation with your account representative to ensure that an adequate earned discount program is designed for you based on your particular activity.